A U.S. bankruptcy judge has approved cryptocurrency lender Celsius Network LLC’s pivot to bitcoin mining, ruling that the company could deviate from a previously approved bankruptcy plan because creditors and customers were no worse off under the new restructuring.
U.S. Bankruptcy Justice Martin Glenn in Manhattan on Wednesday said the bankruptcy plan approved in November contained enough flexibility to allow Celsius to switch to a backup plan after it hit a road block with the U.S. Securities and Exchange Commission.
Celsius filed for Chapter 11 protection in July, 2022, one of several crypto lenders to go bankrupt following the rapid growth of the industry during the COVID-19 pandemic.
Celsius had scaled back broader ambitions to earn fees from validating crypto transactions and start new lines of business after the SEC rejected that plan.
The switch also meant that Celsius would part ways with some of the outside bidders that were selected to manage the new company, leaving mining company US Bitcoin Corp. squarely in charge of running the new, creditor-owned mining business.
US Bitcoin Corp., founded by Hut 8′s Asher Genoot, was originally going to manage Celsius alongside other companies in a consortium of bidders which included Arrington Capital and was collectively called “Fahrenheit.”
Some creditors, as well as the U.S. Department of Justice’s bankruptcy watchdog, argued that the change was significant enough that Celsius should have to put the proposal up for a new vote by creditors.
Justice Glenn was initially sympathetic to that argument, saying during a Nov. 30 court hearing that the mining plan was “not the deal that the creditors voted on.” But Justice Glenn ultimately approved the deal without requiring a new vote.
Celsius’s scaled-back bankruptcy plan also frees up US$225-million in cryptocurrency assets that would have been used to fund the new business lines that were rejected by the SEC.
As a result, more cryptocurrency from Celsius will be returned to customers, Justice Glenn wrote, and customers will also receive equity shares in the new bitcoin mining business.